Hi
@GCar, thanks for this discussion.
I sometimes wonder if anyone really thinks about what or why I say what I say. I guess this shows that they do.
This is the first serious discussion I have had with anyone about any of my pet theories. I hope I can do justice to your post.
Been thinking a bit about this concept of "buy volume" vs "sell volume" that you have been referencing lately.
It seems to have morphed (by some here) from an indicative measure of buy/sell pressure into some idea that it must represent people wanting in or out of the stock. (I realise you haven't presented it as such, btw!)Let's look at it for what it actually is.Afaict, you classify uptick vol as orders that go through on the high side of the spread - i.e. if the bid/ask is 11.5/12, then if someone "buys" into the 12 ask, you count this as uptick vol, Correct. That is the actual & only outcome possible. Same as at an auction. Its simply buying & selling.
It is also the only way for me to analyse the volume / price relationship to the total volume.If you are reflecting on your drive to the beach for the holidays & you only focus on the start & the destination, you miss the journey in between thereby missing the lessons learnt along the road.
The volume & price action is the same as that journey & helps us to understand how we got to the present position (the beach). Studying the relationship between price / vol & net vol, helps to understand the next move in the sp & that it is stress free & you have a pleasant experience.
Unlike the trip to the beach where you got stuck in traffic & copped a speeding fine for going the wrong way.essentially indicating (to some) that "someone wants to buy in". In contrast, when the bid is hit, i.e. someone sells into the 11.5 level, then this "downtick vol" suggests that "someone wants out".I see it not so much that someone specifically wants out, rather that someone or some entity is selling. There is a difference imo. The question then is why?
Now, I see that this might give some indication of the leaning towards either the bid or ask price, but I think this has morphed, quite misleadingly imo, into an assumptions about "people selling out" vs "people buying in"....I haven’t really noticed anyone making that assumption & no, I have not intentionally presented it like that if that is how it’s being interpreted.
I would not even say that it is a measure of buy/sell “pressure” as such, but it is rather a leading indicator showing that the buying or selling is often directly the opposite to what we think is happening.
Using net buy/sell volume as an indicator in conjunction with other indicators this often becomes clearer in real time.
The net buy/sell vol will change also a bit when factoring in short volume because essentially someone is meeting the ask set by the shorter (who has only “borrowed” them) & is waiting in the que to sell.
Should that vol be buying or selling then?
I think it’s both but deduct it from the total net sold as they are eventually returned. Sometimes that deduction shows a very large difference as it did on the 12
th, other times not so much,
When they are returned & appear in the reports then they are counted as buy vol. Sometimes this shows up on a net sell day just to confuse the issue more. Returned stock always shows as buying though because that is what it is. Someone buying someone else’s borrowed short stock!
That data is useful for verification purposes later on but can lag up to 4 days after the event.
Imo the "downtick vol" merely indicates that someone who wants to sell has decided to do so at the current bid price (11.5), instead of putting their shares into the queue at the ask price (12). Yes that is one way to look at it. But again, the question is why & why now.
I am not looking for anything in the bid ask relationship on the MD screen during the day as such as that is mainly window dressing & does not reflect the true buyers or sellers sitting off screen.
There are the exceptions of course with the obviously professional placement of large blocking volume in the screen that show support resistance for a time but that is often false.
In my analyses I only look at the total tick vol & prices in blocks so some vol may be buy vol now but sell vol an hour later & it does not really matter to me if the vol comes from off screen or on screen, it is all about the totals
What I am looking for is the relationship of the volume to the buying /selling (trading) during the day. This can be apparent during the day but things change quickly so is best done after the market has closed.
That info is analysed in regards to the formation of the days bar and/or overall chart pattern to assist with my analysis of the charts.
I have to stress that it is only a small part of any analysis & i
t was & is not my intention to suggest that my theories are anything other than a tool in the TA box that I use to do my analysis.
While I am doing this daily & see trends & such on that time, the data often shows a different story on weekly / monthly time frames, which is what one would expect.The original theory or analysis of net volume is not one of mine.
I came across it quite some time ago in a discussion paper about VSA (Volume Spread Analysis) & since it made sense & appealed to my bent for statistics, I now include it in all my daily chart assessments.
Imo it helps verify what a candle / bar pattern & the associated technical indicators imply at the time.
It is interesting to note that volume, as an indicator, is the only one that you can see & measure in real time & deserves a lot more attention than it gets imo.So reading through your post I mostly agree with what you say.
People tend to think about things from their own perspective & how it impacts on them rather that what is behind day to day movements.
Its just about changing one’s mindset in regards to the market & how & who controls & there would be less stress in investing or trading.
I have also found over the years that the simplest explanations about what we see & think we see are quite often the right ones.
That is why the concept or theory of buy sell vol makes so much sense to me. The market is after all an auction & there is only ever buying or selling.
Who & why is doing it is always going to be a mystery to us.
What I conclude from this, is that for whatever reason, that person/bot/trader wants to sell (usually because they think that the price may be headed down further), and simply thinks that they won't get hit if they join the ask queue. Of course, there may be other reasons they are selling (shorting or creating an impression to sway punters etc), in which case we couldn't conclude they actually "want out" of the stock.
Yes I agree with that to a point.
The market is not for the faint hearted nor is it a place for the uneducated masses with day jobs.
So are those uneducated masses the ones that think they have to get out regardless or is it traders who trade to some sort of half arsed plan?
I think its mostly the latter with the pros churning to create momentum & volatility.
That is one of the assumptions I make & believe I see with the “net vol“ theory.
Thinking about how the market works & who the participants are. It is dominated by professionals who’s only concern is to make money.
So with that in mind, the question again is why are they selling or buying at this particular price & time & are their actions painting a picture & leaving clues for the rest of us.
They are most certainly trying to manipulate the share price for their own ends but I think in the end their goals are similar to ours in that they want to make a profit. So we just have to go along for the ride & pick up any crumbs
So, the question really becomes, imo, are those people selling into the bid price REALLY just wanting out of the stock, or are they, at that very point in time, simply transacting at the bid price because they are not confident of their queued order at the ask price getting hit? (and this ignore the manipulators and shorters who have may an interest in selling down into the bid, rinse repeat).
There may be a few underlying reasons imo:
1/ they truly want out and don't see any short-term case for the sp to hit substantial vol at the ask price or higher
2/ they see the short-term sp "naturally" sinking further and want to trade down for a pip or three, taking a chance that they'll be able to get their vol back at a lower price
3/ they want to push the price down (benefiting their shorts or trading or accumulation), by taking out the bid volume, and convincing the "market" that people are bailing so they'd better follow suit before their capital erodesIt seems to me that many here appear to be automatically assuming that the predominant reason is (1), when they really have little basis for this, and imo there is plenty of reasoning, especially in the current circumstances, for (3) to be very likely.Yes I would agree with that, point 3 seems the most likely & at this point in time also the most fundamentally wrong assumption people have if they were in fact just ordinary uninformed mum & dad type investor.
But that is clearly not who the majority of market participants are so we need to analyse the data accordingly, which brings us back to the who & why they are selling / buying.In summary, imo, it doesn't make much sense to conclude that transactions at the bid price represent people bailing from the stock, above other reasoning such as short-term trade flow and price pressure, for various reasons not in any way linked to a loss of confidence in the company (possibly quite the opposite). We also need to remember, of course, that all sell vol has equal buy vol.Yes I agree with that, point 3 seems the most likely & at this point in time also the most fundamentally wrong assumption people have if they were in fact just ordinary uninformed mum & dad type investor.
But that is clearly not who the majority of market participants are so we need to analyse the data accordingly, which brings us back to the who & why they are selling / buying.Anyway, I'm not at all suggesting that you have presented tis uptick/downtick volume in a certain light, other than perhaps it being indicative of "something", so I'm not criticising your sharing of this info in any way!
It just surprises me that some others jump to conclusions - which is probably what the MM wants and expects them/us to do, as they pull their strings and tap our hard-earned.I regards to the MM’s & there are more than one, they might want us to think & do things that help them & it’s obvious that the general markets participants are being milked.
But they do leave a trail of evidence in their wake that we can utilize if we take the time to understand what we are seeing.
So.
Just to recap.
I look at all these numbers/statistics first & foremost with the clear intention of using them in my analysis of the charts & the other statistical data so that I can attempt to predict the next move or outcome.
Rightly or wrongly it is how I do it.
So what I am looking for with this net volume theory is anything I can glean which can be used in conjunction with the charts & added to my statistical spread sheets.
I am merely throwing these ideas out there for peer review & welcome any discussion to either improve them or throw them out.
So far though they seem to be working for me but they should not be taken as gospel in any way as to what is really going on.
I hope that does not muddy the waters too much.
Thanks for the feedback
